TNT Express Reaps the Benefits of Operations Research

The important role of operations research in driving supply chain benefits was in full display at last month’s OPTIMUS 2012, ORTEC’s annual forum in Atlanta, GA. Many of the company’s key clients were there, including Walmart, Coca-Cola, General Mills, and Clorox. In the case of Coca-Cola, for example, the company has saved $500,000,000 in ten years through a variety of initiatives, including improved loading and routing of its 10,000 trucks (see “Coca-Cola Enterprises: Better Trucks, Happy Drivers, Lower Costs”). And in Walmart’s case, the company developed a hybrid solution for routing and load design, and expanded its network design to include its grocery unit, which resulted in a 69 percent improvement in its private fleet efficiency over its 2005 baseline.

But the case study that caught my attention the most was TNT Express, the winner of this year’s prestigious Franz Edelman Award, presented annually by the Institute for Operations Research and the Management Sciences (INFORMS) to “recognize and reward outstanding examples of operations research, management science and advanced analytics in practice in the world.” In the world of operations research, winning the Franz Edelman Award is like winning a gold medal at the Olympics, and TNT Express — with support from its partners ORTEC (a Logistics Viewpoints sponsor) and Tilburg University — was certainly a worthy winner for the success the company has achieved with its Global Optimisation (GO) Programme.

The GO Programme is a multi-faceted initiative TNT Express launched several years ago to achieve several goals: reduce unit costs; provide better service; enable better and faster fact-based decision making; and reduce CO2 emissions. The program not only involves the use of optimization solutions, but also the creation of Communities of Practice (cross-functional teams, including partners, that meet three times per year to identify, discuss, and exchange best practices and potential improvements) and employee training and education via its GO Academy.

Source: TNT Express

Thanks to the GO Programme, TNT Express has realized more than €207 million (about $266 million) in cost savings and 283 million kg (about 300,000 tons) reduction in CO2 emissions from 2008-2011. The bulk of the savings has come from a variety of optimization tools, including:

  • ORTEC Shortrec for optimizing pick-up and delivery (PUD) operations, which has delivered €22 million in savings from 2008-2011;
  • TRANS for network planning, which has delivered €48 million in savings to date;
  • DELTA for calculating low-cost transportation schedules, which has saved TNT €132 million in four years;
  • MANPOWER for optimizing depot and warehouse resources, which has produced €5 million in savings.

You can get more details about the program at the TNT Express website, where the company has posted several videos and articles about it. But here are some of my key takeaways:

Start small and let success build upon success. The GO Programme started out with Marco Hendriks, Director Strategic Operations and Infrastructure at TNT Express, and his vision about “how operations research and mathematical modelling could add value to TNT.” Despite some “early skepticism about using ‘mathematics’ to improve our global operations,” Marco received approval to conduct a pilot project in Italy, and ORTEC and Tilburg University were selected as partners. “We resisted the tendency to build a sophisticated optimization model, instead starting with basic data analysis compiled from separate commercial, finance, and operations systems” explained Hein Fleuren, Professor in Operations Research at Tilburg University. Based on the insights from the analysis, the team identified and implemented changes that resulted in a 6.4 percent cost reduction. The success of this project led to other projects across Europe, which ultimately grew and evolved into the GO Programme.

Simply put, rather than starting with a grand vision and multi-year project outline, the best way to overcome skepticism, minimize risk, and win upper management support for investing in operations research is to keep it simple: start small, prove the value, and build out from there.

Ease of use is critical for technology adoption. Professor Fleuren sums it up nicely in one of the articles: “In all cases, these GO tools are the econometric models that are used to calculate the best optimization solutions. For TNT, they have to meet many different criteria. First, they have to be transportable so that they can be used in different countries, for different networks and even in other organizations. Secondly, and very importantly, despite the complexity of the models, their design has to be user friendly so that TNT’s employees — who are not mathematicians — can work with them effectively.”

This point underscores one of the key trends occurring in the enterprise software industry today: vendors are investing to simplify and improve their user interfaces, which is quickly becoming a competitive differentiator.

Technology is not enough; you must also invest in training and educating your employees. One of the most important components of the GO Programme is the GO Academy, a training program developed in partnership with Tilburg University and the TiasNimbas Business School. Here are some comments about it from TNT:

The main objective of the GO Academy is to train employees in optimization principles and broaden their views without turning them into mathematicians. The end result is the creation of a global network of talented staff that is able to standardize, identify, and implement solutions.

More than 200 employees from around the world have completed the two-year program, which includes six modules on topics such as infrastructure design, network planning, bottleneck theory, and change management techniques. Marie-Christine Lombard, the former CEO of TNT Express, put it best when she said, “The GO Academy is probably the best investment TNT ever made.”

Clearly, TNT Express understands the critical role of talent development, not only in maximizing the benefits of operations research, but also in creating a competitive advantage for the company. (For related commentary, see “The Most Significant Problem Facing 3PLs and Shippers”).

The bottom line: the bonds between operations research and supply chain management continue to strengthen, and companies that invest smartly in this area — not only in technology, but in talent development too — will gain the greatest benefits moving forward.

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